Yozin v New Zealand Guardian Trust Co Limited [2018] NZHC 1390

Am I interested?

Milan Yozin owned a four-hectare block of land in Swanson, Auckland. He purchased this land in 1937. He and his wife, Zorka, established an orchard, a market garden, and eventually a vineyard on the land. Milan and Zorka had four children, Helen (b.1946), Norma (1948), Rosalie (1951) and Maurice (1953). Milan passed away in 1975, leaving the property in the care of his estate’s executors.

The property was in 20 lots on 3 titles. Title 1 included Lots 1, 2, 4, and 7-20; title 2 included Lot 3 and title 3 included Lots 5-6. Title 2 was bought by Rosalie and Maurice in 1976.

All of Milan’s property was held in testamentary trust, to “sell and convert into money” and to “stand possessed of the proceeds” on trust. The Trustees were to maintain the property for Zorka’s use and enjoyment. When Zorka passed away in 2014, the Trustees were instructed to sell the Property, and share the proceeds equally between the four children when they reached 21 years of age.

Instead of selling the land and receiving their equal share of the proceeds, Rosalie and Helen requested that Lots 1, 2 and part of Lot 4 be partitioned from the rest of the land in partial satisfaction of their inheritance. This would create a sizeable rectangular block of land abutting Swanson Road. The council had agreed to this subdivision in theory.

Norma and Maurice did not object to their sibling’s plan, in principle. Expert valuation evidence was offered by both parties, though they could not agree on how the Lots should be valued, or how a subdivision might affect the value of the remaining land. Norma and Maurice asserted that the subdivided properties had a higher value per square meter than the remaining land, a matter which could not be readily agreed.

An order was sought by Helen and Rosalie from the High Court to partition the land using its powers under the Trustee Act 1956. The relevant section 14(6B) states:

Where upon inquiry the court is satisfied that a partition of the real estate of a deceased person would be advantageous to the parties interested therein, the court may order a partition or may appoint 1 or more arbitrators to effect a partition, and to exercise in regard thereto, under its directions and control, such powers as it thinks fit; and if the report and final award of the arbitrator are approved by the court, the trustee shall, by conveyance or transfer, give effect to the same accordingly.

The Court considered that, for Helen and Rosalie to bring a claim under s 14(6B), the Court needed to first confirm that they were ‘parties interested’ in the land, and second that the partition would be ‘advantageous’ to all interested parties.

The High Court found that Rosalie and Helen were not ‘parties interested’ in the land, and therefore could not establish standing under the section. The Judge in the High Court was of the view that s 14(6B) was intended to allow the Court to partition land gifted in specie – meaning that the land, not the proceeds of sale, were gifted to the beneficiaries. As for the second branch of the Court’s analysis, the partition would not be advantageous unless it could be made out that the subdivision and sale of part of the land to Rosalie and Helen would result in the highest price for the land overall. The High Court noted that it was the Trustees role to determine how to achieve the best price for the land – independent of any agreement or otherwise by the beneficiaries.

Rosalie and Helen appealed, asserting that the Judge in the High Court had interpreted ‘interested’ and ‘advantageous’ too narrowly. To determine the correct interpretation of section 14(6B), the Court of Appeal reviewed the history of relevant legislation and the court’s powers of partition. Much of that review bears repeating, as it is a reminder that equity and trust law, now broadly codified in statute, continues to be heavily influenced by its origins.

Section 14(6B) was originally codified in the Administration Act 1952, but was inserted into the Trustee Act 1956 on 15 November 1968 by s 6(2) of the Trustee Amendment Act 1968. Historically, the Court had no power to divide land held in co-ownership. The Partition Acts 1539 and 1540 conferred this power on the Courts. This created a right for a co-owner to insist that the Court partition land mutually held into separately held titles.

The Court originally had no discretion. This was rectified by the Partition Act 1870, which vested the power to order the sale of land and subsequent division of proceeds. The Partition Act 1870 related to a ‘suit for partition’ of a Property brought by ‘the parties interested or presumptively interested therein’. The Court could order a sale and division of proceeds where the Court was of the view that ‘a sale of the property and a distribution of the proceeds would be more beneficial for the parties interested than a division of the property between or among them’.

The Property Law Act 1952 (“PLA 1952”) s 140 broadened the Court’s powers further, confirming that the Court could order a sale instead of a partition. This could be sought by any party ‘interested’ in the land.

The term ‘interested’ has pervaded through the relevant statutes. The correct interpretation of ‘interested’ has therefore been before the courts prior to the case at hand. The Court of Appeal reviewed a swathe of relevant case law to determine if Helen and Rosalie were within the precise definition of ‘interested’ parties intended by the statute.

To determine the correct meaning of ‘interested’ in the context of the Trustee Act, the Court considered the interpretation in three PLA 1952 cases. These are still relevant to the interpretation of the modern ss 339 - 343 of the Property Law Act 2007 (“PLA 2007”), as the new sections are substantively unchanged. While the PLA 2007 introduced the idea of an order made when a claim is brought by a ‘co-owner’, the idea of an ‘interested’ party was retained in the relevant definitions. The power of sale granted by the PLA, or the power of partition under the Trustee Act, both evolved as alternatives to one another. However, these alternatives were intended to be complementary. The Court of Appeal confirmed that the meaning of ‘interested’ in both jurisdictions was therefore the same. As a result, the case law relevant to interpretation of the PLA sections would be relevant when interpreting the Trustee Act’s language.

In Cook v Hitchens (1982) 1 NZCPR 438 (HC), the High Court considered a party’s standing to counterclaim against an order of sale under s 140 of the PLA 1952 for property partly legally held, and partly equitably held. This mixed interest gave the claimant standing under s 140. In Hancock v Gibson [1996] NZFLR 289 the High Court determined that ‘interest’ was usually a legal interest, but an equitable interest was not prima facie disregarded. In Tanner v New Zealand Guardian Trust Co Ltd [1992] 1 NZLR 57 (HC) the High Court held that a party was ‘interested’ because she had a testamentary entitlement to have land held in trust vested in her.

In summary, under the Trustee Act, an ‘interest’ in land is either equitable or legal, and can be sought by a co-owner or any interested party – mirroring the Court’s interpretation of ‘interested’ in the relevant Property Law Acts.

The Court’s analysis then turned to the nature of an interest held by a beneficiary of an estate’s residue. The Privy Council considered a residual beneficiary in Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 (PC). A husband left his wife a third of the residue of his estate. However, at the time of his wife’s passing, the administration of his estate had not been completed. The issue before the court was whether the widow had a beneficial interest in the property prior to her passing (and ergo the interest was subject to duty). The Privy council observed that equity has always required that a party’s beneficial interest can be tied to a specific, identifiable subject – usually called the trust fund. Until that subject matter existed, the widow only had a chose in action which she could have invoked in connection to the proper administration of her husband’s estate. The Privy Council noted that the widow therefore had a general interest in the residue, but not the more precise legal interest referred to in the relevant charging statute.

Livingston was considered by the High Court of Australia in Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306. The Court considered that the determination of the Privy Council applied equally to specific bequests, devices and residual beneficiaries. Neither a legal nor equitable interest vested in any beneficiary upon the testator’s death – such an interest could not vest until specific property was held in trust in favour of the beneficiary. An interest under law cannot exist if the specific property in which the interest rests is not distinctly identified.

For Rosalie and Helen, the Court of Appeal determined that an interest in the context of s 14(6B) could exist if they had right to call for the conveyance of the land to themselves. As Milan’s will called for the Trustee to sell the real property and create the trust fund from the proceeds of that sale, Rosalie and Helen could not exhibit the requisite interest, legal or equitable, in the land itself. Had the gift been in specie, the outcome would have likely been different. Instead, Rosalie and Helen’s interest was in the proper administration of the estate by the Trustees. As they were not ‘parties interested’ pursuant to s 14(6B) of the Trustee Act, and they could not call for a partition. Regardless, had an interest been evidenced, the Court of Appeal would not have considered that the partition satisfied the ‘advantageous’ branch of the statutory test and thus the claim would have still failed.

In this author’s view, it is reassuring that the more general definition of ‘interested’ in the relevant statutes has not inappropriately expand the precise definition intended by equity law. The matter of interest in the context of testamentary trusts is a nuanced one. The point at which an interest becomes simply too remote, or indirect, for legal privileges and rights to attach can be difficult to pinpoint. That is the very reason why Rosalie and Helen’s claim has ended up before the Court of Appeal. However, the Court in this case has again confirmed that the influence of equitable principles on the Torrens system of registrations is strictly limited. Any claim of equitable interest will only be enforceable if the party can evidence a direct interest in the land itself.

© G D Clews 2019

 

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